<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q
--------------------------------------
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-24976
--------------------------------------
CROWN PACIFIC PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1161833
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
121 SW MORRISON STREET, SUITE 1500, PORTLAND, OREGON 97204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-274-2300
--------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
COMMON UNITS 27,414,704
(Class) (Outstanding at May 13, 1999)
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Statement of Income - Quarters Ended March 31, 1999 and 1998 2
Consolidated Balance Sheet - March 31, 1999 and December 31, 1998 3
Consolidated Statement of Cash Flows - Quarters Ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues ......................................... $ 172,276 $ 153,930
Operating costs:
Cost of products sold .......................... 143,165 127,194
Selling, general and administrative expenses ... 8,984 7,096
------------ ------------
Operating income ................................. 20,127 19,640
Interest expense ................................. 12,137 12,995
Amortization of debt issuance costs .............. 151 216
Other expense (income), net ...................... 144 (462)
------------ ------------
Net income ....................................... $ 7,695 $ 6,891
------------ ------------
------------ ------------
Net income per unit .............................. $ 0.25 $ 0.25
------------ ------------
------------ ------------
Weighted average units outstanding ............... 30,022,946 27,314,277
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 24,255 $ 21,542
Accounts receivable ...................................................... 107,889 85,088
Notes receivable ......................................................... 4,394 4,796
Inventories .............................................................. 55,680 48,885
Deposits on timber cutting contracts ..................................... 2,955 3,492
Prepaid and other current assets ......................................... 5,484 5,053
------------ ------------
Total current assets .................................................. 200,657 168,856
Property, plant and equipment, net of accumulated depreciation
of $32,116 and $29,475 .................................................. 50,858 45,558
Timber, timberlands and roads, net ......................................... 575,889 585,762
Intangible assets, net of accumulated amortization
of $741 and $607 ........................................................ 31,011 21,060
Other assets ............................................................... 22,760 21,157
------------ ------------
Total assets .......................................................... $ 881,175 $ 842,393
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable ............................................................ $ 22,000 $ 10,000
Accounts payable ......................................................... 37,337 30,002
Accrued expenses ......................................................... 23,604 22,137
Accrued interest ......................................................... 13,095 9,023
Current portion of long-term debt ........................................ 36 37
------------ ------------
Total current liabilities ............................................. 96,072 71,199
Long-term debt ............................................................. 552,605 538,521
Other non-current liabilities .............................................. 831 840
------------ ------------
649,508 610,560
------------ ------------
Commitments and contingent liabilities
Partners' capital:
General partners ....................................................... 2,168 2,428
Limited partners (30,301,248 and 29,876,720 units
outstanding at March 31, 1999 and December 31, 1998,
respectively) ......................................................... 229,499 229,405
------------ ------------
Total partners' capital .............................................. 231,667 231,833
------------ ------------
Total liabilities and partners' capital .............................. $ 881,175 $ 842,393
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
3
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
----------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 7,695 $ 6,891
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion, depreciation and amortization .................. 14,643 14,414
Gain on sale of property .................................. (1,265) (3,597)
Net change in current assets and current
liabilities, net of effects of business combination:
Accounts and notes receivable ............................. (21,546) (16,413)
Inventories ............................................... (2,027) 7,997
Deposits on timber cutting contracts ...................... 537 985
Prepaid and other current assets .......................... (1,716) (1,014)
Accounts payable and accrued expenses ..................... 10,932 10,151
------------ ------------
Net cash provided by operating activities ....................... 7,253 19,414
------------ ------------
Cash flows from investing activities:
Additions to timberlands ...................................... (1,633) (2,700)
Additions to timber cutting rights ............................ (2,350) (2,551)
Additions to equipment ........................................ (5,617) (1,309)
Proceeds from sales of property ............................... 2,755 5,260
Principal payments received on notes .......................... 5,428 38
Purchase of business .......................................... (3,114) (15,413)
Other investing activities .................................... (779) (11)
------------ ------------
Net cash used by investing activities ........................... (5,310) (16,686)
------------ ------------
Cash flows from financing activities:
Net increase in short-term borrowings ......................... 12,000 -
Proceeds from issuance of long-term debt ...................... 5,653 148,250
Repayments of long-term debt .................................. (12) (140,257)
Contributions of capital ...................................... - 50
Distributions to partners ..................................... (16,800) (14,997)
Debt and equity issuance costs ................................ (62) (548)
Other financing activities .................................... (9) (76)
------------ ------------
Net cash provided (used) by financing activities ................ 770 (7,578)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............ 2,713 (4,850)
Cash and cash equivalents at beginning of period ................ 21,542 22,384
------------ ------------
Cash and cash equivalents at end of period ...................... $ 24,255 $ 17,534
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
CROWN PACIFIC PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS OR AS OTHERWISE INDICATED)
(UNAUDITED)
1: ORGANIZATION AND BASIS OF PRESENTATION
Crown Pacific Partners, L.P. ("Crown Pacific" or the "Partnership"), a
Delaware limited partnership, through its 99% owned subsidiary, Crown Pacific
Limited Partnership (the "Operating Partnership"), was formed in 1994 to
acquire, own and operate timberlands and wood product manufacturing
facilities located in the northwest United States. The Partnership's business
consists primarily of growing and harvesting timber for sale as logs in
domestic and export markets and the manufacturing and selling of lumber and
other wood products.
The financial statements included in this Form 10-Q are unaudited and reflect
the consolidated financial position, results of operations and cash flows of
the Partnership. These financial statements include all the accounts of the
Partnership but do not contain all of the information required by generally
accepted accounting principles to be included in a full set of financial
statements. The financial statements in the Partnership's 1998 annual report
on Form 10-K, which includes a summary of significant accounting policies of
the Partnership, should be read in conjunction with this Form 10-Q. In the
opinion of management, all material adjustments necessary to present fairly
the results of operations for the three-month periods ended March 31, 1999
and 1998 have been included. All such adjustments are of a normal and
recurring nature and all significant intercompany transactions have been
eliminated. The results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year.
Net income per unit was calculated using the weighted average number of
common and subordinated units outstanding divided into net income, after
adjusting for the General Partner interest. The General Partner income
allocation was $77 and $69 for the three months ended March 31, 1999 and
1998, respectively. There is no significant difference between basic and
diluted earnings per unit as net income is allocated proportionately to both
subordinated and common units.
NOTE 2: INVENTORIES
Inventories, consisting of lumber and logs, are stated at the lower of LIFO
cost or market. Supplies and inventories maintained at non-manufacturing
locations are valued at the lower of average cost or market. Inventories
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Lumber $ 10,358 $ 9,512
Logs 17,666 24,927
Supplies 2,968 2,720
LIFO adjustment 1,705 1,166
------- -------
Manufacturing inventory 32,697 38,325
Wholesale products 22,983 10,560
------- -------
Total $55,680 $48,885
------- -------
------- -------
</TABLE>
5
<PAGE>
NOTE 3: TIMBER, TIMBERLANDS AND ROADS
In the first quarter of each year, the Partnership performs an update of its
timber inventory system. The update resulted in a net decrease in depletion
costs for the first quarter of 1999 of approximately $0.2 million, or $0.01
per unit, and a net increase in depletion costs for the first quarter of 1998
of approximately $2.0 million, or $0.07 per unit, with no impact on cash flow.
NOTE 4: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
1999 1998
----------------- -------------------
<S> <C> <C>
Cash paid during the period for interest $8,130 $6,669
Business assets acquired with debt and equity 19,200 14,500
</TABLE>
NOTE 5: ACQUISITION OF DESERT LUMBER, INC. AND RENO LUMBER SERVICE, INC.
In March 1999, the Partnership acquired Desert Lumber, Inc. and Reno Lumber
Service, Inc. (collectively "Desert Lumber"), which operate contractor
service yards in Las Vegas and Reno, Nevada, for approximately $24.3 million
(excluding contingent future payments of $3.0 million), which consisted of
$5.1 million of cash, $9.0 million in Partnership units and the assumption of
$10.2 million of debt and other liabilities. The acquisition was accounted
for as a purchase and the results of Desert Lumber have been included since
the acquisition date. Goodwill related to this acquisition was $10.0 million
and is being amortized over 40 years. The unaudited pro forma results for the
quarters ended March 31, 1999 and 1998, had the Partnership acquired Desert
Lumber on January 1, 1998, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Revenue $ 180,690 $ 169,965
Net income 7,969 7,581
Net income per unit 0.26 0.27
</TABLE>
NOTE 6: SEGMENT REPORTING
The Partnership classifies its operations into three fundamental businesses:
(1) Timberlands, consisting of the sale of logs to the Partnership's
manufacturing facilities and to third parties, and the sale of timber and
timberlands to third parties; (2) Manufacturing, consisting of the
manufacture of logs into lumber and the sale of residual chips to pulp and
paper mills; and (3) Wholesale Marketing, consisting of the trading of
various forest products and distribution of lumber and panel products through
the Partnership's professional contractor service yards. Transfers between
segments are generally at prices which management believes reflect current
market prices.
6
<PAGE>
The following summarizes the Partnership's segment information:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
Revenues (in thousands) 1999 1998
- ---------------------------------- ------------ ------------
<S> <C> <C>
Timberlands:
Trade $ 33,094 $ 46,048
Intersegment 39,363 36,917
------------ ------------
72,457 82,965
Manufacturing:
Trade 55,285 49,673
Intersegment 3,646 1,275
------------ ------------
58,931 50,948
Wholesale Marketing:
Trade 80,174 53,882
Intersegment 7,711 5,696
------------ ------------
87,885 59,578
Corporate and Other:
Trade 3,723 4,327
Intersegment 798 4,121
------------ ------------
4,521 8,448
Total:
Total Revenue 223,794 201,939
Less Intersegment (51,518) (48,009)
------------ ------------
Net Revenue $172,276 $153,930
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
Operating income (in thousands) 1999 1998
- ---------------------------------- ------------ ------------
<S> <C> <C>
Timberlands $ 16,730 $ 21,107
Manufacturing 2,574 (825)
Wholesale 3,301 2,075
Corporate and Other (2,478) (2,717)
------------ ------------
Operating Income 20,127 19,640
Interest Expense (12,137) (12,995)
Other (295) 246
------------ ------------
Net Income $ 7,695 $ 6,891
------------ ------------
------------ ------------
</TABLE>
NOTE 7: SUBSEQUENT EVENTS
On April 20, 1999, the Board of Control authorized the Partnership to make a
distribution of $0.564 per unit. The total distribution will be $17.4 million
(including $0.4 million to the General Partners) and will be paid on May 14,
1999 to unitholders of record on May 6, 1999.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Crown Pacific's principal operations consist of the growing and harvesting of
timber, the sale of logs and the processing and sale of lumber and other wood
products. The Partnership's ability to implement its business strategy over
the long term and its results of operations depend upon a number of factors,
many of which are beyond its control. These factors include general industry
conditions, domestic and international prices and supply and demand for logs,
lumber and other wood products, seasonality and competition from other
supplying regions and substitute products.
FORWARD-LOOKING STATEMENTS
Information contained in Item 2 and other sections of this report include
forward-looking statements including statements regarding the Partnership's
expectations, hopes, beliefs, intentions or strategies regarding the future
that are not purely historical, but are based on assumptions that in the
future may prove not to be accurate. The Partnership's business and prospects
are subject to a number of risks, including the volatility of global timber
and lumber prices and supplies, factors limiting harvesting of timber
including contractual obligations, governmental restrictions, weather and
access limitations, as well as the substantial capital expenditures required
to supply its operations.
Additional factors that could affect future performance include environmental
risks, operating risks normally associated with the timber industry,
competition, government regulation and economic changes in the regions where
the Partnership's products are sold, including Southeast Asia and Japan.
Other risk factors include the value of the U.S. dollar against foreign
currencies and the ability of the Partnership to implement its business
strategy. These and other risks are described in the Partnership's
registration statements and reports filed from time to time on forms 10-K,
8-K and 10-Q and reports to unitholders, which are available from the
Partnership or the United States Securities and Exchange Commission.
FINANCIAL CONDITION
The Partnership's primary sources of liquidity have been cash provided by
operating activities as well as debt and equity financings. Cash provided by
operating activities was $7.3 million and $19.4 million for the three-month
periods ended March 31, 1999 and 1998, respectively. Working capital
increased to $104.6 million at March 31, 1999 compared to $97.7 million at
December 31, 1998. The decrease in cash provided by operating activities and
the increase in working capital are primarily a result of increased accounts
receivable and inventory balances related to the Partnership's wholesale
operations.
Net cash used in investing activities of $5.3 million resulted from the
acquisition of Desert Lumber and Reno Lumber and additions to timberlands,
equipment and timber cutting rights, which was partially offset by proceeds
from sales of properties and principal payments received on notes.
Net cash provided by financing activities of $0.8 million resulted primarily
from a $12.0 million net increase in short-term borrowings and $5.7 million
net proceeds from long-term debt, offset by distributions to partners of
$16.8 million.
8
<PAGE>
Cash required to meet the Partnership's quarterly cash distributions (as
required by the Partnership Agreement), to pay for capital expenditures and
to satisfy interest and principal payments on indebtedness, will be
significant. Capital expenditures, consisting of additions to timber cutting
rights and additions to property, plant and equipment, were $8.0 million in
the first quarter of 1999, and are expected to total approximately $18
million during all of 1999. Additions to timber and timberland purchases are
evaluated as opportunities arise and totaled $1.6 million in the first
quarter of 1999. The Managing General Partner expects that capital
expenditures will be funded by a combination of any or all of the following:
property sales, cash generated from operations, current funds or bank
borrowings. The Partnership expects to make cash distributions from its
current funds and from cash generated by operating activities.
The Partnership has a $40 million revolving credit facility with a group of
banks for working capital purposes and stand-by letters of credit that expire
on September 30, 2000. The credit facility bears a floating rate of interest,
7.75% at March 31, 1999, and among other provisions, requires the Partnership
to repay all outstanding indebtedness under the facility for at least 30
consecutive days during any twelve-month period. The line of credit is
secured by the Partnership's inventories and receivables. At March 31, 1999,
the Partnership had $22 million outstanding under this facility, which has
subsequently been repaid.
The Partnership also has an Acquisition Facility with a group of banks to
provide for a $150 million revolving line of credit for the acquisition of
additional timber, timberlands and related assets. The Acquisition Facility
is unsecured and expires September 30, 2000. At the end of the revolving
period, the Partnership may elect to convert any outstanding borrowings under
this facility to a four-year term loan, requiring quarterly principal
payments equal to 6.25% of the outstanding principal balance on the
conversion date. At March 31, 1999, the Partnership had $66.6 million
outstanding under this facility related to the final payment on the notes
related to the Trillium acquisition, with a weighted average interest rate of
6.1% at March 31, 1999.
On December 30, 1997, the Partnership issued $15 million of new senior notes
and on January 13, 1998, the Partnership issued an additional $80 million of
new senior notes. The $95 million of combined notes have an average interest
rate of 7.80%, with principal payments of varying amounts due 2010 to 2018.
The proceeds of these notes were used to refinance indebtedness associated
with the Trillium acquisition and to finance a portion of the Alliance Lumber
acquisition.
The Partnership's 9.78%, 9.60% and 8.17% senior notes, issued in 1994, 1995
and 1996, respectively, are unsecured and require semi-annual interest
payments through 2013. These senior notes, with an aggregate $391 million
principal amount, require the Partnership to make an aggregate principal
payment of $37.5 million on December 1, 2002, and annual principal payments
in various amounts from December 1, 2003 through 2013.
All of the Partnership's senior note agreements and bank lines of credit
contain certain restrictive covenants, including limitations on harvest
levels, land sales, cash distributions and the amount of future indebtedness.
The Partnership was in compliance with such covenants at March 31, 1999.
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
GENERAL
Net revenues during the first quarter ended March 31, 1999 increased 11.9% to
$172.3 million, from $153.9 million in the same quarter in 1998. The $18.3
million increase was principally due to increases in revenues from the
Partnership's wholesale and manufacturing operations, partially offset by
decreases in log and property sales from the timberland operations.
Cost of sales as a percentage of sales increased to 83.1% in the first
quarter of 1999, compared to 82.6% in the same quarter of 1998. The increase
is primarily the result of a larger portion of the Partnership's revenue
being derived from its wholesale operations, which operate at a lower margin,
and lower sales realizations for lumber, partially offset by a change in the
reserve for LIFO inventories during the first quarter of 1999. A similar LIFO
benefit is expected to be booked in each of the remaining quarters of 1999.
Selling, general and administrative expenses increased $1.9 million to $9.0
million in the first quarter of 1999, compared to $7.1 million in the first
quarter of 1998, primarily as a result of the growth of the wholesale
operations including the addition of Desert Lumber for one month of 1999.
Selling, general and administrative expenses represented 5.2% of sales in the
first quarter of 1999 and 4.6% of sales in the same quarter of 1998.
Interest expense decreased $0.9 million to $12.1 million in the first quarter
of 1999, from $13.0 million in the same quarter of 1998. The decrease is
primarily a result of lower average debt balances during the first quarter of
1999 compared to the first quarter of 1998 as a result of the payoff of
approximately $50 million of debt at the end of the fourth quarter of 1998
following the receipt of proceeds from an equity offering.
Other expense, net of $0.1 million in the first quarter of 1999 includes a
$0.5 million charge to set up a reserve for an expected loss related to the
auctioning off of the Partnership's Colburn mill during the second quarter of
1999.
The Partnership pays no significant income taxes and does not include a
provision for income taxes in its financial statements.
TIMBERLANDS
Total external log sales, including stumpage sales, but excluding property
sales, were $30.3 million, or 17.6% of sales in the first quarter of 1999,
compared to $40.7 million, or 26.4% of sales in the comparable quarter of
1998.
10
<PAGE>
Average external domestic prices received for logs sold from the various tree
farms, excluding pulpwood, were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------------
REGION 1999 1998 % CHANGE
- -------------------------- --------------- -------------- ----------------
<S> <C> <C> <C>
Olympic tree farm $357/MBF $443/MBF (19.4)%
Oregon tree farm $388/MBF $432/MBF (10.2)%
Inland tree farm $491/MBF $300/MBF 63.7%
Hamilton tree farm $352/MBF $385/MBF (8.6)%
</TABLE>
Decreases at the Olympic, Oregon and Hamilton tree farms are primarily a
result of increased stumpage sales in the first quarter of 1999 compared to
the first quarter of 1998, offset in part by an increase in prices received
for logs. Prices received for stumpage sales are lower than those received
for logs, which include the price of logging.
The increase at the Inland tree farm is a result of a higher priced stumpage
sale of cedar logs that are no longer being forecast to be run through the
Inland mill.
Domestic external log sales volumes decreased 32.3% in the first quarter of
1999 to 62.4 million board feet (MMBF), compared to 92.2 MMBF in the same
quarter of 1998 primarily as a result of increased internal sales to the new
Bonners Ferry and Port Angeles saw mills. The external volume from each of
the Partnership's tree farms was as follows (in thousands of board feet
(MBF)):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------------
REGION 1999 1998 % CHANGE
- -------------------------- --------------- -------------- ----------------
<S> <C> <C> <C>
Olympic tree farm 23,114 21,877 5.7%
Oregon tree farm 1,752 19,028 (90.8)%
Inland tree farm 22,478 25,762 (12.7)%
Hamilton tree farm 15,047 25,538 (41.1)%
--------------- -------------- ----------------
Total 62,391 92,205 (32.3)%
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
Sales of logs to customers involved in exporting activities (included in
total log sales above) were approximately $2.0 million, or 1.2% of sales in
the first quarter of 1999, compared to $1.3 million, or 0.8% of sales for the
same quarter in 1998. Prices received for export logs increased 10.2% to
$624/MBF while sales volumes increased 44.8% to 3.2 MMBF in the first quarter
of 1999 from levels experienced in the same quarter of 1998. The increases in
price and volume are primarily a result of the Asian economies needing to
replenish depleted inventories.
Revenue and operating income from property sales in the first quarter of 1999
were $2.7 million and $1.3 million, respectively, compared to $5.2 million
and $3.4 million, respectively in the first quarter of 1998. There was only
one parcel sold in the first quarter of 1999 compared to several parcels in
the first quarter of 1998. As part of its ongoing strategy of reinvesting the
value of non-strategic timberlands, the Partnership will continue to sell or
trade properties in both Oregon and northwest Washington.
11
<PAGE>
Overall operating income from timberlands, including property sales,
decreased 20.9% to $16.7 million in the first quarter of 1999 from $21.1
million in the first quarter of 1998, primarily as a result of decreases in
external log sales and fewer property sales in the first quarter of 1999
compared to the first quarter of 1998 as discussed above.
MANUFACTURING
Lumber sales, excluding sales of lumber products through the wholesale
division, were $55.3 million, or 32.1% of sales in the first quarter of 1999,
compared to $49.7 million, or 32.3% of sales in the same quarter of 1998.
Average external prices received for lumber in the various regions were as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------------
REGION 1999 1998 % CHANGE
- -------------------------- --------------- -------------- ----------------
<S> <C> <C> <C>
Oregon $599/MBF $568/MBF 5.5%
Inland $350/MBF $420/MBF (16.7)%
Washington $286/MBF $332/MBF (13.9)%
</TABLE>
The decreases at the Inland and Washington regions are primarily a result of
a planned concentration on fewer species, which have a lower sales
realization. This change allows the Partnership to increase its overall
throughput, therefore decreasing manufacturing costs, and lowering the amount
of inventory at each of the mills.
External lumber sales volumes increased 19.9% in the first quarter of 1999 to
120.2 MMBF compared to 100.3 MMBF in the same period of 1998. External sales
volumes from the various regions were as follows (in MBF):
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
---------------------------------
REGION 1999 1998 % CHANGE
- -------------------------- --------------- -------------- ----------------
<S> <C> <C> <C>
Oregon 44,324 45,368 (2.3)%
Inland 50,815 46,495 9.3%
Washington 25,109 8,431 197.8%
--------------- -------------- ----------------
Total 120,248 100,294 19.9%
--------------- -------------- ----------------
--------------- -------------- ----------------
</TABLE>
The increases at the Inland and Washington regions are primarily as a result
of production from the newly constructed Bonners Ferry and Port Angeles saw
mills that came on line during the fourth quarter of 1998.
By-product and other revenues accounted for 2.3% of sales in the first
quarter of 1999, compared to 2.2% of sales in the same quarter of 1998.
Residual wood chip prices increased to $68 per bone dry unit (BDU) in the
first quarter of 1999 compared to $61/BDU in the first quarter of 1998.
Prices are expected to remain at current levels throughout 1999 as the
Partnership benefits from favorable contracts in both the Inland and
Washington regions.
12
<PAGE>
Operating income from manufacturing increased to $2.6 million in the first
quarter of 1999 from a loss of $0.8 million in the first quarter of 1998. The
increase is primarily a result of efficiencies and cost reductions realized
at existing mills as well as achieving production goals at the new Bonners
Ferry and Port Angeles mills.
WHOLESALE MARKETING
External revenues from sales by the Partnership's wholesale operations
consisted of lumber and other wood products, most of which were not
manufactured by the Partnership, and totaled $80.2 million, or 46.5% of sales
in the first quarter of 1999, compared to $53.9 million, or 35.0% of sales in
the first quarter of 1998. Operating income from wholesale operations
increased 59.1% to $3.3 million in the first quarter of 1999 from $2.1
million in the first quarter of 1998. The increases in revenue and operating
income are a result of the acquisition of Desert Lumber and Reno Lumber in
March 1999, which added two new contractor service yards, as well as internal
growth at existing service yards.
YEAR 2000 ISSUES
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As the Year 2000
approaches, these code fields will need to accept four digit entries to
distinguish years beginning with "19" from those beginning with "20". As a
result, computer systems and/or software products used by many companies may
need to be upgraded to comply with such Year 2000 requirements. The
Partnership has established a plan to address the Year 2000 issue, which
consists of the following phases:
1. Identification and assessment of all software and hardware Partnership-wide
2. Modification or replacement of equipment and software
3. Final testing to insure that all systems are Year 2000 compliant
For implementation of its Year 2000 Plan, the Partnership has divided its
computer systems and equipment in the following categories:
1. Operating systems and data servers.
2. Business and financial reporting systems at all locations.
3. Personal computers and peripheral equipment at all locations.
4. Communication and other facility support systems.
5. Manufacturing systems at all conversion facilities.
The Partnership has substantially completed its identification and assessment
of all operating systems and data servers, business and financial reporting
systems, personal computer and peripheral equipment and communication and
other facility support systems. The majority of all business and financial
reporting systems have been replaced with third-party Year 2000 compliant
software. All other non-manufacturing systems have been or are in the process
of being modified for Year 2000. The identification and assessment of
manufacturing systems will be completed by May 31, 1999. Necessary
modification of manufacturing systems is anticipated to be completed by June 30,
1999. Testing of all systems is scheduled to be completed by September 30,
1999. In addition, the Partnership has identified and is in the process
of surveying its critical customers and vendors with respect to their
progress on Year 2000 issues. This is expected to be completed by June 30,
1999.
13
<PAGE>
Total costs incurred to date with respect to compliance with Year 2000
issues, excluding the cost of new software that was scheduled for
replacement, are less than $100,000. Future costs to complete the plan are
not expected to exceed $100,000.
The Partnership does not anticipate major interruptions in its business as a
result of Year 2000 issues. The Partnership is, however, dependent on systems
outside of its control such as power, transportation, financial services and
telecommunications. There can be no assurance that the Partnership will not
experience disruptions that would have a negative effect on its operations
and financial condition. The Partnership believes that the financial impact
of an outside system failure would be mitigated to some degree by the
geographic distribution of its operations and it is unlikely that all areas
would be impacted in the same manner. The Partnership will continue to
monitor the progress that providers of critical outside systems make in
achieving Year 2000 compliance and evaluate the need for contingency plans.
Such plans could include increasing levels of inventory, arranging for
alternative transportation and shifting production to unaffected operations.
The estimates and conclusions herein contain forward-looking statements and
are based on management's best estimates of future events. These
forward-looking statements are based on numerous assumptions regarding future
events including, among others, expectations regarding third-party
modification plans, the nature and amount of testing required by the
Partnership, continued availability of trained personnel and other resources,
as well as expectations with respect to the Partnership's ability to discover
and correct the potential Year 2000 sensitive problems which could have a
serious impact on specific facilities, and the ability of suppliers to bring
their systems into Year 2000 compliance.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
derivative instruments. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The Partnership is not currently utilizing any
derivative instruments and, accordingly, the adoption of SFAS 133 will have
no impact on the Partnership's financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below and this list is
intended to serve as the exhibit index:
EXHIBIT NO. AND DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 1999.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1999 CROWN PACIFIC PARTNERS, L.P.
By: Crown Pacific Management Limited
Partnership, as General Partner
By: /s/ Richard D. Snyder
----------------------------------
Richard D. Snyder
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
15
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<PERIOD-START> JAN-01-1999
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